Record $93bn invested in European ETFs as investors steer clear of US counterparts
A "New Dawn" for Europe: Record Investments in Q1 2025
Investors have been pouring unprecedented amounts into European exchange-traded funds (ETFs) at the start of 2025, with capital flowing away from US assets. This shift can be traced back to the likes of Donald Trump and his trade policies.
Trump's implementation of tariffs on imports globally has pushed investors to reconsider their exposure to the United States. During the first quarter, the European ETF market witnessed a staggering influx of $93 billion in net new assets, surpassing the previous record of $91 billion set in Q4 2024 during Trump's election victory.
These inflows were primarily driven by growing worries over US market concentration and the lure of diversification in European equities. European focused ETF assets under management now stand at a whopping $2.38 trillion, with record performances in gold, commodities, and fixed income contributing to the growth.
European-exposed ETFs saw a record $19.4 billion in inflows, accounting for approximately a fifth of net new assets in Q1. The demand for European equities played a significant role in this surge.
Broadening this perspective, broader European equity products drew inflows of $11.4 billion. Germany-focused ETFs also saw substantial inflows, amounting to $5 billion. On the contrary, US equities suffered outflows, with $4.5 billion, with over $2.2 billion leaving in March alone as investors steered clear of the US markets and instead showed preference for Europe.
Gold has also seen increased interest during the period, with gold ETPs recording inflows over the past four months. Gold was the top-performing asset in Q1, with a return of 19%, as investors flocked to this 'safe haven' asset during tumultuous equity markets.
Gary Buxton, head of EMEA ETFs at Invesco, predicts that this trend will continue as long as uncertainty persists, making a strong case for gold, which tends to hold its value during times of increased market volatility and uncertainty.
All in all, the record investments in European ETFs can be attributed to strategic portfolio rebalancing by investors seeking diversified growth opportunities beyond the US market. As the European Union continues to adapt and evolve, the attractiveness of European ETFs appears poised for continued growth.
Bonus Facts:- A significant factor contributing to the appeal of European stocks is the faster pace of deregulation compared to the United States, combined with more ambitious fiscal policies, particularly in Germany[1].- Compared to US stocks, European stocks offer better valuations and less dependence on technology stocks, making them more attractive to growth-oriented investors[1].- Europe's economic environment, characterized by easier monetary policies and lower perceived inflation risks, has further contributed to the appeal of European ETFs[1].
- Despite the massive inflow of capital into US-based assets in the past, a reverse trend has been observed in Q1 2025, with investors shifting their focus towards European stocks, spurred by the tariffs imposed by the US and the promise of diversification in European equities.
- The European ETF market recorded a historic high of $93 billion in net new assets during Q1 2025, surpassing the previous record set during Trump's election victory in Q4 2024.
- The appeal of European ETFs in 2025 can be attributed to several factors, including the faster pace of deregulation compared to the US, more ambitious fiscal policies, particularly in Germany, and a more attractive valuation compared to US stocks, which are over-reliant on technology stocks.
- The popularity of European ETFs is not limited to equities; gold ETPs have also seen significant inflows in the past four months, making it the top-performing asset in Q1 2025, with a return of 19%.
- As investors continue to seek growth opportunities beyond the US market, the attractiveness of European ETFs appears poised for continued growth, particularly considering the economic environment characterized by easier monetary policies and lower perceived inflation risks.
